Phone, cable, Net all in one, for less

EXAMINER NEWS SERVICES

Published 4:00 am, Thursday, June 25, 1998

1998-06-25 04:00:00 PDT CALIFORNIA; UNITED STATES -- Internet access, cable TV and local and long-distance telephone charges may be on one bill - and at a lower cost - in the future seen by AT&T and Tele-Communications Inc.

AT&T Chairman Michael Armstrong at a news conference trumpeted the idea of creating an all-in-one service as a major reason for the deal, which will create AT&T Consumer Services with a reach into 33 million homes, or one-third of all U.S. households.

By his reckoning, those consumers will be able to subscribe to cable TV, local and long-distance telephone service and high-speed Internet access through the new company. "They can simply access (services) from a single company that has a single connection," Armstrong said.

AT&T Corp. said Wednesday it planned to buy TCI, the nation's No. 2 cable-system operator, for $45.8 billion in stock and debt.

Industry experts agreed that with the largest telephone company banding with the second-largest cable TV company, the new entity would have the financial muscle and ready capital necessary to invest in new cable infrastructure and make Armstrong's vision a reality.

They said that the promise to bundle current services, such as cable TV and phone use, into one bill might mean lower prices to consumers, thanks to discounts for subscribing to one or more services.

"Down the road, when the new company will be able to offer packaged services - cable plus Internet access or a second or third phone line - you should see a price advantage for consumers," said Christine Heckart with Boston-based telecommunications consultancy TeleChoice Inc.

For instance, households currently may pay about $40 for basic cable and $20 for basic Internet access via a telephone line and a computer. In some markets, TCI offers cable TV and Internet access via its link with its affiliate, Redwood City-based At Home Corp., for only $40, Heckart said.

Analysts also said offering two or three services in a package should reduce the cost of doing business, and that lower cost could be passed along to consumers.

Finally, the deal might discourage AT&T customers from jumping to other long-distance companies to take advantage of special deals. Known in the industry as

"churning," jumping around among long-distance providers to take advantage of sales and other promotions has become a problem for long-distance providers.

But consumers might be discouraged from making such changes if their long-distance service is packaged with the cable TV and Internet services, analysts said.

"It's easy to see . . . if a consumer has AT&T cable, he or she might as well stick with AT&T long distance," said Mike Vorhaus, managing director at Iowa-based research firm Frank Magid Associates Inc.

Lowering the so-called "churn rate" cuts the promotional expenses needed to retain customers and could be passed along to consumers in the form of lower prices.

Some industry experts voiced concern that a single provider of communications into the home could give that provider a sort of monopoly in the house, thereby boosting prices.

Others said local regulations covering cable TV prices and federal restrictions on phone service should keep a cap on prices consumers pay.

But some analysts think they may have heard all that boasting about the benefits of merging telephone and TV service before. It sounded to them like the chiefs of several regional phone companies four years ago when two-way communication on TV, or "interactive TV," was an industry buzzword.

The goal then was to control communication into homes through a single connection, thereby deriving fees that came from using that connection. The promise was convenience in ordering movies on demand and shopping with a remote control.

But the companies learned the cost to build systems was prohibitive. The technology to make them work well was not available, and consumer expectations were not met.

The AT&T-TCI marriage already has been good for At Home, whose shares rose 30 percent on optimism that the deal would speed the Internet service provider's expansion.

Wednesday, At Home shares rose 1115 / 16 to 513 / 16 in trading of 11.8 million, more than 11 times the three-month daily average. Earlier the shares touched 54, an all-time high.

With its acquisition of TCI, AT&T will receive TCI's 39.1 percent stake in At Home. At Home, which slowly has been expanding both the quality and the geographic reach of its service, stands to benefit from AT&T's deep pockets and its desire to boost revenue from fast-growing Internet-related services as its long-distance service revenue slows.

"One must assume that AT&T's appetite for upgrading is larger than TCI's," said At Home Chairman and Chief Executive Tom Jermoluk.

At Home provides technology that links cable TV lines to the Internet so consumers can access Web sites through speedy cable modems instead of phone lines.&lt;